EPS, PE, and Mergers
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The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here:
Flannery Stultz
Price-earnings ratio 5.60 16.80
Shares outstanding 59,000 177,000
Earnings $225,000 $900,000
Flannery's shareholders will receive one share of Stultz stock for every four shares they hold in Flannery.
Question 1:
(a) What will the EPS of Stultz be after the merger? Round your answer to 2 decimal places. (e.g., 32.16)
EPS: $__________
(b) What will the PE ratio be if the NPV of the acquisition is zero?(Round your answer to 2 decimal places. (e.g., 32.16)
PE ratio: ______
Question 2:
What is the value of Flannery to Stulz?
Value of Flannery to Stulz: $___________
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Solution Summary
Provides steps necessary to determine value of EPS, PE and Mergers.
Solution Preview
(a) Total Earnings after the merger = $225000+$900000=$1125000
Outstanding shares = shares issued to Flannery shareholders + outstanding shares of Stultz before the merger
=59000/4+177000=191750
EPS = Total earnings / total ...
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